the current asset Cash and to decrease the current asset Accounts Receivable. Note that no revenue is reported when the $850 is received on January 8 and there is no effect on HRS’s net income. Remember there is a...
the current asset Cash and to decrease the current asset Accounts Receivable. Note that no revenue is reported when the $850 is received on January 8 and there is no effect on HRS’s net income. Remember there is a...
Why is income received in advance a liability? Definition of Income Received in Advance Under the accrual method of accounting, when a company receives money from a customer prior to earning it, the company will have to...
and disposal. net property, plant and equipment. The recorded costs of the tangible noncurrent assets used in the business minus the related accumulated depreciation. accounts receivable, net. The recorded amount of...
day, but the balance sheet amounts represent the amount at the instant or moment after all of the transactions of the specified day have been recorded. We avoid saying that the balance sheet is for the day, since the...
What is the time value of money? Definition of Time Value of Money The time value of money recognizes that receiving cash today is more valuable than receiving cash in the future. The reason is that the cash received...
it is assumed that they will not be turning to cash quickly. The quick ratio is calculated by dividing the amount of “quick assets” by 2) the amount of current liabilities. The quick ratio assumes that only the...
statement when they occur even if payment will take place 30 days later. The accrual method of accounting, which is also known as the accrual basis of accounting, is required for large corporations. (The cash method of...
because of insufficient funds A transfer of funds to another account at the bank The bank’s use of the term debit memo is logical because the company’s bank account is a liability in the bank’s general ledger....
be calculated by discounting the bond’s future cash amounts (semiannual interest payments and the maturity amount) back to the amount of cash paid to buy the bond (the present value). Example of Actual or Real...
What type of account is the Dividends account? Definition of Dividends Account When a corporation declares a cash dividend, the amount declared will reduce the amount of the corporation’s retained earnings. Instead of...
Bank Reconciliation Bank Reconciliation The bank reconciliation is also known as the bank statement reconciliation or the bank rec. In accounting, a corporation’s checking account is considered to be part of its cash...
This system requires that every business transaction must affect at least two general ledger accounts, and the debit amounts must be equal to credit amounts. Mark as wrong Mark as right owner's draw (or)...
will be occurring automatically when using accounting software: Cash will be credited whenever a check is written Cash will be debited when money is received Accounts Receivable will be debited when a sales invoice is...
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
.) Therefore the preferred stock is not likely to see an increase in dividends. On the other hand, the dividends on the common shares of stock will be determined and declared by the board of directors. Hence, in the...
See discounted cash flow model.
Cash received. Receipts are different from revenues.
The ability to generate cash.
Life insurance without a cash value.
See cash surrender value.
On credit; not for cash.
See cash surrender value.
What are sales discounts? Definition of Sales Discounts Sales discounts (if offered by sellers) reduce the amounts owed to the sellers of products, when the buyers pay within the stated discount periods. Sales discounts...
How does the accounting equation stay in balance when the monthly rent is paid? How a Rent Payment Affects the Accounting Equation A company’s payment of each month’s rent reduces the company’s asset Cash. This is...
general ledger account Cash (or Cash: Checking Account) with the bank’s information. Prior to issuing a company’s financial statements, it is wise to reconcile every balance sheet account by collecting the...
What is the acid test ratio? Definition of Acid Test Ratio The acid test ratio, which is also known as the quick ratio, compares the total of a company’s cash, temporary marketable securities, and accounts receivable...
to as liquidity ratios or short-term solvency ratios since they assist in evaluating a company’s ability to pay its current obligations: Working capital Current ratio Quick ratio Accounts receivable turnover ratio...
. The landlord requires a security deposit of $1,000. The company debits the long-term asset Security Deposit for $1,000 and credits Cash for $1,000. The landlord debits Cash for $1,000 and credits a liability account...
by the utility after six months of timely payments. The new business will record the deposit with a $500 debit to the current asset account Utilities Deposits and will credit the asset account Cash for $500. The...
What is a comparative balance sheet? Definition of Comparative Balance Sheet A comparative balance sheet typically has two columns of amounts that appear to the right of the account titles or other descriptions such as...
will be a negative $8,000. The negative amount of owner’s equity is a problem that will be obvious to anyone reading the company’s balance sheet. However, the company may be able to operate if its cash inflows are...
How do you record the sale of land? Definition of Sale of Land Assume that a retailer sells land that it had been holding for a future store. The retailer must remove the cost of the land from its general ledger asset...
noncurrent asset section of the corporation’s balance sheet. This section is likely to have the heading Investments. The bond sinking fund is a noncurrent (or long-term) asset even if the fund contains only cash. The...
after cash and cash equivalents, short-term investments, and receivables. If only the sum of the manufacturer’s inventory categories is listed in the current assets section, then the notes to the financial statements...
statement. US GAAP requires corporations to report/disclose the amount of income taxes paid (as well as the amount of interest paid). Example of Where the Income Taxes Paid is Reported The amount of income taxes...
Should receipts be recorded using the date the money was received or the date the money was deposited in the bank accounts? Cash receipts should be recorded with the date the money was received. For example, a church...
How should the sale of gift certificates be recorded in the general ledger? Definition of Gift Certificates Gift certificates (and gift cards) are often sold by a retailer to a buyer for cash. The buyer can then redeem...
, plant and equipment for a cash amount that is less than the carrying amount (or book value) of the asset sold. Nonoperating expenses and losses are often reported on the income statement after the subtotal Income from...
to manually posting them to the accounts in the general ledger or subsidiary ledger. Examples of Journals in a Manual Accounting System Manual systems usually had a variety of journals such as a sales journal, purchases...
, the expense will be recorded as part of the entry. When the company pays the invoice, the balance in Accounts Payable is reduced and the balance in the company’s Cash account is reduced. The payment does not affect...
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